Heads of global multilateral agencies outline central role in addressing multiple crises

The World Trade Organisation (WTO), the International Monetary Fund (IMF), the World Bank (WBG), the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB) outlined on 27 July the role they play in supporting sustainable development and helping developing economies respond to the COVID-19 pandemic, the war in Ukraine and climate and energy-related crises.

The session held at the Aid for Trade Global Review looked at where Aid for Trade financing is being directed, what it is achieving and how future priorities should balance short-term pressures with longer-term needs.

Heads of the five agencies examined how the multiple crises facing the world are impinging on the trade and development prospects of developing economies, with countries everywhere facing inflationary pressures and high food and energy prices, hitting the poorest people the hardest. These issues are converging at a time when the need to take action on greenhouse gas emissions and to support a just transition to a low-carbon model of growth has never been more pressing, they said.

In her opening remarks, WTO Director-General Ngozi Okonjo-Iweala said: “These institutions, which have a growing role in supporting sustainable development and supplying local public goods, are also at the forefront of addressing trade-related capacity and infrastructure issues, which continue to roll back the economic integration of many developing and least developed countries (LDCs).”

DG Okonjo-Iweala noted that since the launch of the Aid for Trade initiative in 2006, some USD 556 billion has been disbursed by development banks and bilateral donor countries. Of this, more than 20% or USD 114 billion has been provided by the international financial institutions. She noted that Aid for Trade is making a difference to people’s lives and livelihoods but stressed that whilst disbursements have been increasing, reaching almost USD 49 billion in 2020, some questions remain.

“We must ask ourselves if this enough. Is it making the right impact when developing countries are in tight financial straits, under debt distress and severe inflationary pressures?” she asked.

DG Okonjo-Iweala referred to the recent economic forecast downgrade by the IMF, which reflects stalling growth in the world’s three largest economies — the United States, China and the euro area — with important consequences for the global outlook.

Against this background, DG Okonjo-Iweala stressed that more must be done to help developing countries weather the current economic headwinds. “We must seek to ensure a more equitable distribution of Aid for Trade resources to ensure that it reaches those that need it the most.”

She emphasized that developing countries and donors are counting now more than ever on the multilateral trading system to provide a way out. “The COVID-19 pandemic has not resulted in downgrading trade as a priority in the development strategies of developing countries. Indeed, the pandemic has underscored the critical role that trade plays in delivering development outcomes in areas such as the digital economy, and in helping countries face the challenges posed by climate change,” she noted.

Looking forward, she said that deconcentrating manufacturing capacity and diversifying supply chains will be essential. “Trade is not a panacea and some people have been left behind, but we can use it as an instrument to bring people back into global value chains. So let us relocate production and manufacturing in developing countries and use that as a means of bringing them in. I call it re-globalization. Let’s re-globalize and not de-globalize.”

Kristalina Georgieva, IMF Managing Director, indicated that all the downside risks anticipated by economists in April have materialized. The war in Ukraine continues, which is having an impact on food and other commodity prices, and COVID-19 has led China to undertake lockdowns that have slowed down its economy this year to levels not seen in the last 40 years, she said.

Ms Georgieva noted that governments are “in a very difficult place” because they have an obligation to throw cold water on inflation to stop incomes suffering but they have less policy space to do so than in 2020. She said that fiscal policy has to be there now for the most vulnerable businesses and people but in a very targeted manner to avoid exacerbating inflationary pressures.

“My message here is that we are in for a tough 2022, possibly a tougher 2023, especially for emerging and developing economies that are being hit by all the same pressures as advanced economies,” she said. “On top of that, those that have high levels of debt, especially dollar denominated debt, will be faced with tremendous difficulty to serve it.”

“We are walking a very narrow path to avoid the recession. It is like crossing a mountaintop. If we walk in line and we walk in coordination, step by step together, we can pass. If we do not do that, the outcome is clear, there would be much more pain for countries,” she added.

Mari Elka Pangestu, World Bank Managing Director of Development Policy and Partnerships, underlined that the multiple crises are affecting developing countries in particular and accentuating development challenges that pre-existed before the current crises. The World Bank expects extreme poverty to go up by 75 million by the end of the year, with food prices rising by 86% since 2020, with 60% of low-income countries experiencing or at high risk of debt distress.

Ms Pangestu underlined the impact the crises will have on how economies move from a fossil coal or fuel-based model to cleaner energy. “What we are predicting is that there will be a slowdown of this transition because everybody is more concerned about energy security. But accelerating renewables is part of the answer to the energy security question because it’s about diversification of sources,” she said.

Odile Renaud-Basso, President of the EBRD, also touched upon the energy transition as some countries in Europe have gone back towards reopening coal plants and increasing liquified natural gas imports from around the world. She agreed with Ms Pangestu that the short-term pressure on energy security is undermining the climate agenda but it can also represent an opportunity to focus on renewable energy efficiency.

Ms Renaud-Basso emphasized that in its efforts to move towards a greener model, the EBRD has decided to be aligned with the Paris Agreement and will only invest in projects that are fully consistent with the target of ensuring the planet’s average temperature does not rise more than 1.5 degrees Celsius above its pre-industrialized level. The EBRD has a green trade facilitation programme in place since 2016 and has disbursed USD 1.3 billion so far in green financing, she said. “We have to put the green transition at the core of what we do,” she added.

Woochong Um, ADB Managing Director-General, focused on the key role played by digitalization in facilitating access to markets. The digital economy has the capacity to reduce trade costs for firms, especially small and medium-sized enterprises (SMEs) which are dominant in many economies in terms of output and job creation, he said.

While acknowledging the great development potential of digital trade, Mr Um warned about the barriers holding back its full potential, especially in services. He called on policymakers to work towards mobilizing investment in digital infrastructure, improving digital literacy and bridging the digital divide  across countries and across generations.

“Appropriate policy reforms along with regional and international regulatory cooperation should also go a long way in terms of improving the transparency and standardization and harmonizing the digital trade systems across borders, allowing digital services trade to flow in a secure and inclusive manner,” he said.